Paypal India Users Need Purpose Code to Withdraw Money

The Paypal India fiasco is continuing. Now Paypal has informed Indian users withdrawing money need to fill out a new field “Purpose Code’, which is now required under Indian laws in order to identify the nature of cross-border merchant transactions. This is not the IEC or export code everyone was blogging about.

Some key implications now are that Indian PayPal users are no longer able to receive personal payments and your  customers now have three options to pay you by using the Pay for Purchases (Goods or  Services) tab, completing PayPal checkout at your website or responding to PayPal “Request Money” instructions (invoices).

Paypal enlists a long list of Purpose codes. These match with the  New Purpose Codes for Reporting Forex Transactions-Receipt Purposes on the Reserve Bank of India website. If you check the list, it seems  Bloggers will need to use purpose code P0805, under the category Content and Journalism described as News Agency and Subscription services.

What is unclear is that if you simply receive advertising income and send out free new updates, how can you be exporting your service. Paypal is only allowing withdrawls for export of good and services, and as before I am still skeptical if this would invite service tax burden under the the Export of Service Rules, 2005 on those who will now come under the RBI scanner.